To assuage concerns that the industry is in the last innings of good health, said Clewlew, know that leasing fundamentals in industrial are excellent. His top-line state of the industrial market: the cap rate arbitrage is over, user demand is high, and capital is abundant, seeking low volatility, inflation-protected yield. E-commerce demand is growing rapidly, and experts are saying that this is just the first inning – so much growth ahead is expected.

“Wage growth is paltry, and supply exceeds demand here – there are too many workers for jobs available. This is what drives inflation,” says Clewlew. Fewer workers are needed globally, yet manufacturing output continues to soar, particularly in China.

If in fact our growth has been slow and sustainable, is it possible that a recession could be equally as gentle? More risk is required today to achieve the same results as investors in 1995, Clewlew noted.

REITs are outperforming bonds, particularly related to U.S. inflation. In 1995, interest rates were 10 percent and capital didn’t want to go into industrial real estate, but the leasing market was strong. This period we are currently in is a rare coalescence of both robust capital and leasing.

In short, Clewlew’s take on the industrial real estate market is extremely positive, and all will increase focus on lowering costs, fees and consolidation:

The business cycle is moderating with fewer extremes.

Flat interest rates are lessening volatility and arbitrage.

We’re seeing an increased focus on fundamentals of operations in CRE, and increased accuracy of information.

The big and the little companies will survive; it’ll be tougher for the midsize companies who aren’t quite as nimble.

There will be an increased merging of private equity and the CRE sector, resulting in greater discipline and transparency.

Gray touched on industrial site selection and how those factors are critical to business. The number one factor in site selection is labor – a full 30 percent of companies cannot find the right labor to fulfill their jobs at any given point in time. The biggest gaps are in warehouse workers, manufacturing workers and truck drivers. The second factor is no longer business costs, but logistics and access to markets and transportation routes. This, of course, is tied to e-commerce, but directly affected an infrastructure deficit. In Canada, that infrastructure deficit is estimated to be up to $400 billion.

Only 10 percent of Canadian businesses use any type of e-commerce platform at all, putting the nation behind the proverbial 8-ball, said Gray. Amazon has seven percent of Canada’s e-commerce sales.

With a wide perception among Canadians that an anti-globalization movement is underway, issues of concern emerge. The biggest concern is increased barrier to trade, followed by higher costs and tariffs, increases in near-shoring, and decreased global expansion opportunities. Canada-to-U.S. imports – particularly for the Toronto region – are up to 49 percent of the region’s export business to the U.S., Canada’s number one trade partner. Go further west, and there’s increased trade with Mexico and Asia; further east is trade with the European Union.

So what are early indicators of good or rough times ahead? The price of a barrel of oil, said Gray, as there’s good linkage between oil pricing and the strength of the U.S. dollar. Seventy percent of Canada’s agricultural exports goes to the U.S., so keeping a balance between the currencies is also important. While U.S. Interest rates were raised recently, the Bank of Canada chose to keep the nation’s flat. This is important because changes here can deeply impact investment activity. And lastly, don’t forget to keep an eye on spending – consumer confidence and consumer spending accounts for 70 percent of U.S. GDP.

About NAIOP

Since 1967, NAIOP, the Commercial Real Estate Development Association, has become the leading organization for developers, owners and investors of office, industrial, retail and mixed-use real estate. NAIOP comprises 18,000+ members and provides strong advocacy, education and business opportunities through a powerful North American network. Visit our website at www.naiop.org.